Educational Articles

The Growing Backlash Against GMOs

George M. Lee
| October 29, 2013

The genetically modified food industry has recently garnered increased attention as various opposition groups have ramped up their activities. On May 25, 2013, the global movement against genetically modified organisms (GMOs) was able to mobilize an estimated two million protestors in 436 cities across 52 countries. As these anti-GMO sentiments grow ever stronger, prudent investors will definitely want to keep a close eye on these developments.

The impressive global outcry earlier this year targeted the entire GMO industry, but market-leader Monsanto (MON) captured the bulk of the headlines. As the unwilling poster child of the anti-GMO movement, Monsanto finds itself in an unenviable position. Indeed, Monsanto’s share prices retreated shortly after the May protests, undoubtedly due in part to some erosion of shareholder confidence.

The other major GMO companies, like Bayer, Dow Chemical (DOW), DuPont (DD - Free DuPont Stock Report), and Syngenta, have fared slightly better when it comes to public relations, even though they also provide similar GMO products. For example, Dupont offers a drought-tolerant corn seed called “AQUAmax” that offers similar performance to Monsanto’s “DroughtGard” and Syngenta’s “Artisian.” One major difference, however, lies in the ways that these seed lines were developed. Whereas Monsanto used transgenic gene splicing to introduce a bacterial gene into its drought-tolerant corn, the other two used more traditional selective breeding approaches to emphasize desired traits over many generations.

Monsanto has not historically shied away from risks, and has consequently generated a fair share of controversy along the way. By embracing relatively newer and less-proven transgenic techniques, the company has earned the ire of some segments of the public. This is partially rooted in the fear that splicing genes from different organisms will eventually result in uncontrollable and harmful “Franken organisms.” In comparison to the laser-like precision of transgenesis, however, a mutagenic selective breeding approach tends to generate a greater number of modified genes and changes that are not always fully mapped and understood. As a result, from an empirical perspective, one method is not necessarily any safer than the other at the moment.

Throughout human history, progress and innovation have often encountered resistance in their nascent stages. Monsanto’s proclivity for living on the leading edge, however, extends beyond its operating activities. Within the courtrooms, the company has won a series of favorable judgments that will ultimately benefit the GMO industry as a whole. In Bowman v. Monsanto, the U.S. Supreme Court recently decided that companies like MON have the right to patent their GMO seeds and retain rights on subsequent generations of seeds produced from those of the original sale. By upholding these intellectual property rights, companies will be further encouraged to dedicate additional resources to the development of newer and hopefully even safer GMOs.

In the political arena, Monsanto has also led the way by defeating Proposition 37 last year, and more recently saw the Senate reject a GMO labeling amendment to the Farm Bill in May 2013. Even more controversial was the Farmer’s Assurance Provision which can provide temporary deregulation that allows growers to continue using biotech crops during any legal challenges – so long as they have been previously approved by the USDA. Although it is often nicknamed the “Monsanto Protection Act,” this provision actually applies to other GMO companies as well, and has created a favorable short-term operating environment for biotech companies that specialize in crops.

That said, for better or for worse, people all over the world seem to be concerned about genetically modified foods. When news broke regarding the discovery of stray GMO wheat in Oregon earlier this year, countries like Japan and Korea immediately banned all wheat imports from the U.S. Although GMO wheat has not been shown to cause any health problems, people seem to be erring on the side of caution. Expect these cautious sentiments to deepen, at least until additional research can conclusively show the long-term safety of ingesting GMOs.

In the meantime, GMO companies will continue to be bogged down in legal issues against the triad of customers, consumer groups, and fellow competitors. Already, class action suits over the GMO wheat found in Oregon have been filed against Monsanto on the grounds of negligence. Too, law makers in states like Vermont and Hawaii seem to be giving some serious consideration to issues like mandatory GMO labeling or even an outright GMO ban in the latter case.

Fearful of a legal backlash from these corporate giants, the governments of some states like Connecticut have hedged their bets by passing mandatory labeling laws that will only take effect if a minimum requisite number of other states representing sufficiently large populations also pass similar laws. As this trend continues, states are setting themselves to fall like a line of dominos once a few of the more populated states take the plunge. Most recently, lawmakers in Los Angeles have introduced a motion that would ban the cultivation of GMO plants in the city. This bill would not prevent the sale of foods containing GMO ingredients. Moreover, since small-scale local farmers in the LA area do not typically use GMO seeds, this bill would be mostly a symbolic show of support for the anti-GMO movement. However, well aware of this growing wave of unrest, companies like Monsanto have allocated sizable budgets to lobby against this trend. Instead going on the defensive, perhaps these GMO companies ought to consider a more proactive strategy of embracing these labelling requirements and showing that there is nothing to hide. In the absence of any real food safety issues, these GMO labels would quickly become an afterthought like the numerous other disclaimers, warnings, and fine print with which consumers are bombarded on a daily basis.

Despite a mixed short-term outlook, the GMO industry continues to hold much long-term growth potential, as these high-yield biotech crops will be necessary to feed the ever growing population of the world. Indeed, according to the USDA’s 2013 Agricultural Survey, 93% of soybeans and 90% of corn grown within the U.S. were classified as biotech varieties. Unless global resource constraints suddenly disappear for some miraculous reason, GMOs are most likely here to stay. As the undisputed leader for GMO research, Monsanto will likely continue to carry the GMO banner well into the future. That said, the company’s unproven transgenic approaches and legal issues seem to be losing some ground in the battle for popular opinion. Investors looking to mitigate their risks in this promising growth sector will want to consider some of the other more diversified GMO producers who have thus far stayed relatively outside the limelight of the growing backlash of public opinion.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.